February 3, 2009 / 7:48 PM / 8 years ago

Oil industry cost, job cuts may hit safety, skills

4 Min Read

LONDON (Reuters) - The oil industry is taking a familiar response to the collapse in crude prices, cutting costs and jobs, but this could lead to an equally familiar outcome of poor safety, and staff shortages when crude rebounds.

BP (BP.L) Chief Executive Tony Hayward said on Tuesday he planned to exceed his target of cutting 5,000 out of around 90,000 jobs worldwide by the middle of 2009, and to accelerate cost cuts.

"The mantra in BP today is: 'Every dollar counts, every seat counts'," Hayward told reporters.

The comments echo an email that rival Royal Dutch Shell Plc's (RDSa.L) exploration boss Malcolm Brinded sent to staff last week:[ID:nLU145734]

"We simply need much higher sustainable savings this year ... Shed contractor staff, challenge requirements, eliminate consultancy work, reduce travel massively, cut overheads everywhere," the email, seen by Reuters, said.

Across the Atlantic U.S. oil major ConocoPhillips (COP.N) said last month it would cut 4 percent of its workforce.

Companies are focusing on reducing headcounts and costs because they have learnt from the last downturn that they need to maintain exploration activity levels to preserve their long-term oil production capability.

"What we know is that if we turn the capital down the growth will not follow a few years from now," Hayward said.

"What we clearly are going to be pushing on .. is how do we get more, bigger bang for our buck, how do we get the same activity for fewer dollars?."

Committed to Safety?

All the companies say they plan to make savings without compromising safety but labor unions on both sides of the Atlantic say history suggests otherwise.

Official reports into an explosion at BP's Texas City refinery in 2005, which killed 15 workers, and an oil spill in Alaska in 2006, blamed "draconian" cost cutting ordered by former CEO John Browne, after crude fell to $10/bbl in the late 1990s.

Former Shell employees and labor representatives blamed safety lapses at some Shell facilities in the North Sea, which were highlighted by the safety regulator in recent years, on cost cutting following the low oil prices in the late 1990s.

The concerns about safety are heightened because union leaders say safety did not improve during the bumper years.

"The conditions that led to the March 2005 explosion are still prevalent throughout the industry," said Lynne Baker, United Steel Workers spokeswoman for national oil bargaining.

Willy Wallace, oil and gas official at labor union Unite, said the same was true in the UK.

"The companies have been going through a very profitable time so you would have thought they could have focused more on bringing down (the number of safety incidents) but it doesn't seem to have happened."

Last October, Ayman Asfari, Chief Executive of one of the UK's largest oil services companies Petrofac (PFC.L), criticized the state of platforms in the North Sea and warned a drop in investment as a result of lower crude prices could lead to serious accidents.

Skills Gap to Widen

At almost every oil industry conference since crude started to rocket in 2004, CEOs have complained about a shortage of skilled labor, saying this contributed to the surge in oil prices by making it harder to bring new supply on line.

"The industry created a big problem under investing in people and skills in the late 1990s which really became a crunch in the last four years," said Peter Parry, partner in the energy practice at consultants Bain.

Analysts predict that, with the current round of job cuts, most companies are laying the foundations for similar problems for the future.

"Some companies will be very smart about it but the significant bulk of the industry will be quite reactionary," Parry said.

Editing by Elaine Hardcastle

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